Retirement Savers are Relying on their Homes as a Pension

Homeowners over 50 approaching retirement are relying on their homes to provide them with a pension, according to new research.

Around 50% of over 50s intend to unlock cash to help fund a comfortable retirement by downsizing to a smaller home, while another 17% are relying on equity release borrowing to top up their pensions.

However, pensions and financial firm LV= suggests many are rating the value of their homes too high.

Nearly 40% agree an average £21,749 has been wiped off property values during the past three years, 18% of working over 50s consider they have time to wait for their property value to improve before drawing on the equity.

Another 9% will spend on home and garden improvements in a bid to add value to their homes before trying to raise money by selling or from equity release.

Finances delay retirement

Discussing their retirement plans, 35% of working over 50s expect to delay their retirement for financial reasons, while 20% are exploring ways to boost their retirement income by taking a second job or taking in a lodger.

Around 14% will retire according to their plans, but accept they will have to settle for a lower income to meet their deadline.

About 16% confess they would rather not discuss their retirement finances.

Vanessa Owen, the firm’s head of equity release said: “Turbulent times are still ahead for the UK economy, but despite the uncertainty surrounding the housing market our HIPpies generation have not been discouraged.

“The number of over 50s planning to use their home as their pension has remained stable when we compare it to our 2011 report. A property is often the largest asset people have, so it makes sense for them to see it as a way of helping to provide an additional stream of income for them when they retire.”

One in 10 (10%) of those over 50 who plan on unlock the cash in the value of their home will not only supplement their own income, but will help their children or grandchildren to buy a new home, save for a wedding or help with school fees.

Worry of low interest rates

Another 10% plan to pay for care in their later years, while many need the money to pay day-to-day bills, 7% will fulfil lifelong ambitions, like world travel or buying a boat.

Low interest rates are a worry for retirement savers, interest earned on savings has dropped significantly in recent years.

A third (33%) of working homeowners over 50 would like rates to rise as the positive effect on their savings would outweigh any extra interest costs when paying back debt.

However, just over one in eight (13%) say a Bank of England base rate increase would lessen their retirement income, as the increased cost of repaying debts like loans and credit cards would restrict the amount they could save.

“With the purse strings being firmly tightened it is impossible to ignore the need for those over 50 to consider additional sources of retirement income,” said Owen.

“Planning ahead is vital, as is seeking professional financial advice. Using the money locked in their home can sometimes be the only way for people to secure a comfortable retirement.”